ADDL DIT(IT) RG 2, MUMBAI V. SIEMENS AKTIENGESELLSCHAFT, MUMBAI

ITA 8094/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78838 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 21-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 24-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR
• Assessee Lawyers: NITESH JOSHI
• Keywords: Double taxation relief

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI . . , / BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND . , SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 THE DDIT (IT)-2(1), ROOM NO.120, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N.M.ROAD, MUMBAI 400 038. / VS. M/S. SIEMENS AKTIENGESELLSCHAFT, C/O. BSR & CO., 1 ST FLOOR, LODHA EXCELUS, APOLLO MILLS COMPUND, MM JOSHI MARG, MAHALAKSHMI, MUMBAI 400 011 ! ./ '# ./ PAN/GIR NO. : AABCS 8516K ( !$ / APPELLANT ) .. ( %&!$ / RESPONDENT ) !$ ' / APPELLANT BY: SHRI NARENDER KUMAR %&!$ ( ' / RESPONDENT BY : SHRI NITESH JOSHI ( ) / DATE OF HEARING : 06/05/2014 *+ ( ) / DATE OF PRONOUNCEMENT : 06/05/2014 , / O R D E R PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-II, MUMBAI DATED 09/09/2010 FO R ASSESSMENT YEAR 2006- 07. GROUNDS OF APPEAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE INCOME OF THE ASSESSEE AR ISING ON ACCOUNT OF ROYALTY AND FEES FOR TECHNICAL SERVICES IS TAXABLE ON RECE IPT BASIS AND NOT ON ACCRUAL BASIS AS HELD BY THE ASSESSING OFFICER IN THE ASSES SMENT ORDER. . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT VALUE OF THE SOFTWARE SUPPLIE D BY THE ASSESSEE TO M/S. SIEMENS LTD. CANNOT BE TREATED AS ROYALTY IN THE HANDS OF THE ASSESSEE. 2. AT THE OUTSET IT MAY BE MENTIONED HERE THAT LD. AR WAS REQUIRED TO SUBMIT WHETHER OR NOT ANY APPEAL WAS FILED BY THE A SSESSEE AGAINST THE IMPUGNED ORDER OF LD. CIT(A). IN REPLY LD. AR SUB MITTED THAT ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE IMPUGNED ORDER OF LD. C IT(A). 2.1 IT WAS FURTHER SUBMITTED BY LD. AR THAT BOTH TH E ISSUES RAISED BY THE REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE BY T HE EARLIER ORDERS OF THE TRIBUNAL. THE ISSUE RAISED IN FIRST GROUND IS ALS O COVERED BY THE ORDER OF THE HONBLE BOMBAY HIGH COURT. 3. APROPOS FIRST GROUND; ASSESSEE WAS ACCOUNTING I TS INCOME ARISING ON ACCOUNT OF ROYALTY AND FEE FOR TECHNICAL SERVICES ON RECEIPT BASIS. THE STAND OF THE ASSESSEE HAS NOT BEEN ACCEPTED BY A.O ON TH E GROUND THAT DEPARTMENT HAS TAKEN A CONSISTENT VIEW THAT THE INCOME IN THIS REGARD SHOULD BE RECOGNIZED ON ACCRUAL BASIS. IT IS IN THIS MANNER THE INCOME OF THE ASSESSEE WAS WORKED OUT. THE ACTION OF AO WAS AGITATED IN AN APPEAL FILED BEFORE LD.CIT(A), WHO RELYING UPON THE ORDERS RENDERED BY ITAT IN RESPECT OF ASSESSMENT YEARS 1990-91, 1991-92, 1994-95, 1996-97 , 1997-98 AND 2001-02 HAS HELD THAT ROYALTY HAS TO BE ASSESSED TO TAX ON RECEIPT BASIS AND NOT ON ACCRUAL BASIS. THE DEPARTMENT IS AGGRIEVED BY SUCH FINDINGS RECORDED BY LD. CIT(A) AND HAS RAISED GROUND NO.1. 4. BEFORE US, APART FROM AFOREMENTIONED ORDERS OF T HE TRIBUNAL, REFERENCE WAS ALSO MADE TO THE DECISION OF HONBLE BOMBAY HIG H COURT RENDERED IN RESPECT OF ASSESSMENT YEAR 1996-97, WHICH IS AN ORD ER DATED 22/10/2012 IN I.T. APPEAL NO.124 OF 2010, COPY OF ORDER IS PLACED AT PAGES 3 TO 4 OF THE PAPER . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 3 BOOK. FOLLOWING QUESTION WAS RAISED BY THE REVENUE BEFORE HONBLE BOMBAY HIGH COURT: I)WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE ROYALTY AND FEES F OR TECHNICAL SERVICES SHOULD BE TAXED ON RECEIPT BASIS WITHOUT APPRECIATING THE FAC T THAT THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF STANDARD DRUM MOTORS PRIVATE LIMITED V/S. CIT, 201 ITR 391 THAT THE CREDIT ENTRY TO THE ACCOUNT OF THE ASSESSEE NON-RESIDENT IN THE BOOKS OF THE INDIAN COMPANY AMOUNTED TO RECEIPT BY THE NO N-RESIDENT? THEIR LORDSHIPS HAVE DECIDED THIS ISSUE AS PER THE FOLLOWING OBSERVATIONS: 2. AS REGARDS FIRST QUESTION IS CONCERNED, THE INC OME TAX APPELLATE TRIBUNAL REFERRING TO PARA-1 TO 3 UNDER ARTICLE IIX-A OF THE DOUBLE TAXATION AVOIDANCE TREATY WITH THE FEDERAL GERMANY REPUBLIC AS PER NOT IFICATION DATED 26TH AUGUST 1985 HELD THAT THE ASSESSMENT OF ROYALTY OR ANY FEE S FOR TECHNICAL SERVICES SHOULD BE MADE IN THE YEAR IN WHICH THE AMOUNTS ARE RECEIV ED AND NOT OTHERWISE. COUNSEL FOR THE REVENUE RELIED UPON THE SPECIAL BEN CH DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WHICH IN OUR OPINION, HAS NO RELEVANCE TO THE FACTS OF THE PRESENT CASE, AS IT RELATES TO THE PERIOD PRIOR TO THE ISSUANCE OF NOTIFICATION DATED 26T1 AUGUST 1985. IN THIS VIEW OF THE MATTER THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL IN HOLDING THAT THE ROYALTY AND FEES FOR TECHNICAL SERVICES SHOULD BE TAXED ON RECEIPT BASIS CANNOT BE FAULTED . HE SUBMITTED THAT SUBSEQUENTLY THE AFOREMENTIONED O RDER WAS FOLLOWED BY THEIR LORDSHIPS IN RESPECT OF ASSESSMENT YEARS 199 7-98, 2001-02 AND 2003- 04. 5. IN THIS VIEW OF THE SITUATION AFTER HEARING BOT H THE PARTIES, WE HOLD THAT LD. CIT(A) DID NOT COMMIT ANY ERROR IN ACCEPTING TH E CLAIM OF THE ASSESSEE AS THE SAME IS IN ACCORDANCE WITH THE DECISION OF HON BLE BOMBAY HIGH COURT. THIS GROUND OF THE REVENUE IS DISMISSED. 6. APROPOS GROUND NO.2, THIS ISSUE RELATES TO EQUI PMENTS HAVING SOFTWARE WHICH WERE REQUIRED FOR PROPER RUNNING OF THE EQUI PMENTS SOLD BY THE ASSESSEE. THE A.O SEGREGATED THE SALE AMOUNT INTO TWO CATEGORIES; (A) SALE OF EQUIPMENTS; (B) SALE OF SOFTWARE AND ASSESSED A SUM OF RS.236.81 CRORES ON ACCOUNT OF SUPPLY OF SOFTWARE BY TREATING THE SAME AS ROYALTY IN THE HANDS OF . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 4 THE ASSESSEE COMPANY. ON THE OTHER HAND, IT IS T HE STAND OF ASSESSEE THAT SOFTWARE IS A PART AND PARCEL OF EQUIPMENT SOLD, TH EREFORE, NO ROYALTY IS PAYABLE. BEFORE, LD. CIT(A) REFERENCE WAS MADE TO THE EARLIER DECISION OF ITAT ON THE SAME ISSUE IN WHICH THE ISSUE WAS DECIDED BY ITAT IN FAVOUR OF THE ASSESSEE. THESE ARE DECISIONS IN ITA NO.1957/MUM/2 007 & C.O NO.187/MUM/2007 DATED 8/12/2008 IN RESPECT OF ASSES SMENT YEAR 2001-02 AND ITA NO.2099/MUM/2007 & CO NO.188/MUM/2007 DATED 10/12/2008 FOR ASSESSMENT YEAR 2002-03 AND RELYING ON THESE DECISI ONS LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND DELETED THE ADDITION, HENCE, THE DEPARTMENT HAS RAISED GROUND NO.2. 7. AT THE OUTSET IT WAS SUBMITTED BY LD. AR THAT T HIS ISSUE IS CONSISTENTLY DECIDING IN FAVOUR OF THE ASSESSEE BY THE ITAT AND REFERENCE WAS MADE TO THE ORDERS OF ITAT RENDERED IN RESPECT OF ASSESSMENT YE AR 2001-02, 2002-03 AND 2003-04 AND 2004-05. COPY OF THESE ORDERS HAVE BEE N ENCLOSED IN THE PAPER BOOK FROM PAGES 1 TO 18. THE INITIAL ORDER OF THE TRIBUNAL IS IN RESPECT OF ASSESSMENT YEAR 2001-02, COPY OF WHICH IS PLACED AT PAGES 15 TO 18 OF THE PAPER BOOK( APPEAL NOS. HAVE BEEN DESCRIBED IN ABOV E PART OF THIS ORDER). THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FACT THAT THE AS SESSEE HAD NOT SEPARATELY SOLD SOFTWARE BUT IT WAS PART AND PARCEL OF THE EQUIPMEN T SUPPLIED TO M/S. SIEMENS LIMITED. THE CASE OF THE ASSESSEE IS THAT IT SHOULD BE TAKEN AS BUSINESS PROFITS AS PER ARTICLE-7 OF DTAA BETWEEN INDIA AND GERMANY. ON THE OTHER HAND THE DEPARTMENT WANTS IT TO BE CONSIDERED AS FALLING UND ER ARTICLE-13, BEING THE ROYALTY. WE HAVE TO DECIDE WHETHER THE SUM OF RS.5. 29 CRORES IS TO BE CONSIDERED AS BUSINESS PROFITS OR ROYALTY. THE SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF MOTOROLA INC. VS. DCIT [(2005) 95 ITD 269(DELHI)(SB )] HAS CONSIDERED THIS ASPECT AND HELD THAT THE PAYMENT MADE TO THE ASSESSEE FOR USE OF SOFTWARE IN THE EQUIPMENT DID NOT AMOUNT TO ROYALTY EITHER UNDER TH E INCOME-TAX ACT OR THE DTAA. THE FACTS INVOLVED IN THE INSTANT CASE ARE A KIN TO THOSE CONSIDERED BY THE SPECIAL BENCH IN THE AFORE-NOTED CASE. THE LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY DISTINGUISHING FEATURE IN T HE FACTS OF THE INSTANT CASE VIS- -VIS THAT DECIDED BY THE SPECIAL BENCH. RESPECTFUL LY FOLLOWING THE VIEW TAKEN BY THE SPECIAL BENCH ON THIS ASPECT OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT RECEIVED BY THE ASSESSEE TOWARDS SU PPLY OF SOFTWARE CANNOT BE SEGREGATED FROM THE SUPPLY OF EQUIPMENT AND HENCE T HAT PORTION CANNOT BE . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 5 CONSIDERED ROYALTY. WE, THEREFORE, APPROVE THE VI EW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE. 8. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, WE DECLINE TO INTERFERE IN THE RELIEF GRANTED BY LD. CIT(A) AS T HE SAME IN ACCORDANCE WITH THE ORDERS OF TRIBUNAL RENDERED IN THE CASE OF ASSESSEE FOR EARLIER YEARS. THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/201 4 , ( *+ - ./ 06/05/2014 + ( 0 1 SD/- SD/ - ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; . DATED 06/05/2014 , , , , ( (( ( %)2 %)2 %)2 %)2 32 ) 32 ) 32 ) 32 ) / COPY OF THE ORDER FORWARDED TO : 1. !$ / THE APPELLANT 2. %&!$ / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 250 %) , , / DR, ITAT, MUMBAI 6. 0 6 / GUARD FILE. , , , , / BY ORDER, &2) %) //TRUE COPY// 7 77 7 / 8 8 8 8 ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS . / ITA NO.8094/MUM/2010 / ASSESSMENT YEAR 2006-07 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 06/05/2014 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 07/05/2014 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER